What Is an RRSP Loan (Borrow to Contribute)?

An RRSP loan lets you borrow money specifically to make an RRSP contribution. The lender holds your contribution as security, and you repay the loan over a set period (typically 1–5 years). The math is simple: if your marginal tax rate is higher than the interest rate on the loan, the strategy can work.

How RRSP Loans Work

You borrow $10,000, contribute it to your RRSP, claim a deduction on your tax return, receive a $4,000+ tax refund (assuming 40%+ marginal rate), and use the refund to pay down the loan. Your net cost is the interest on the loan minus the tax savings.

Key Strategy: Using Your Tax Refund to Repay

The power of RRSP loans lies in the tax refund cycle. When you contribute to your RRSP, CRA returns 30–54% of the contribution depending on your marginal tax bracket. The ideal scenario is to use that refund to immediately pay down the loan. This significantly reduces your net interest cost. For example: borrow $10,000 at 7%, receive $4,000 refund, pay the loan down to $6,000 after one year, then continue repaying the remainder.

Best Timing: January to March

The best time to take an RRSP loan is January through February. You have the full year to contribute, file your tax return, and receive your refund before the loan is due. If you borrow in October, you have only a few months to get the refund, which disrupts cash flow planning.

Interest Rate vs. Tax Savings Tradeoff

RRSP loans typically charge 1–3% above prime (currently 7–9% in 2026). Before borrowing, calculate: (loan amount × interest rate) – (contribution × marginal tax rate). If the result is negative, the tax savings exceed interest costs. If positive, you're paying net out-of-pocket. For high-income earners (50%+ marginal rate) with large contribution room, RRSP loans often make sense. For those in lower brackets (30% or less), the math becomes harder.

Risks of RRSP Loans

If you don't repay quickly, interest compounds, and you're essentially carrying debt. If your income drops next year and your tax refund is smaller, you'll have a shortfall. Some borrowers refinance the loan instead of using refunds to pay it down, extending the debt indefinitely. Set a clear repayment timeline and use 100% of your refund to pay the loan, not other expenses.